The Auto Insurance Claims Process | In Practise

The Auto Insurance Claims Process

Former Claims Manager at State Farm

Learning outcomes

  • Walk through the auto insurance claims process
  • Impact of higher digital vs physical loss adjusting
  • The relationship between total loss frequency and customer NPS
  • Outlook on accident frequency and potential impact on total loss frequency
  • How Root or Lemonade’s claims process compares to incumbents
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Executive Bio

Todd McGrath

Former Claims Manager at State Farm

Todd has over 34 years experience in the insurance industry and enjoyed 26 years working at State Farm. He is the Former Claims Manager where he led a division of over 600 people processing auto and home claims across the US. Todd was heavily involved in reducing the cost of processing claims through digital adjusting and centralised claims processing. Todd has worked in claims throughout his whole career covering all parts of the process including litigation, special investigation, and years in the field as an adjustor. Read more

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Todd, can you share a short introduction to your experience in the industry please?

I started in the insurance industry back in 1986. I graduated from college with a four-year degree and applied and started working with State Farm Insurance in West Lake Village, California, which is just north of Los Angeles, as a fire claim representative handling homeowner claims. Over the first seven or eight years of my career, I handled a variety of claims, from homeowner property to casualty, to litigation; a lot of catastrophe claim handling. State Farm had a program where, if a large hailstorm or a hurricane hits and it just inundates the local claim staff, they take adjustors from throughout the United States, fly them into wherever, Miami or Dallas, Texas, to work for 28 days. I did a lot of that, then I gradually worked my way into leadership. At one point I was a claim consultant for State Farm Insurance in their Bloomington, Illinois home office, and consulted for various regions throughout the United States. In the last 10 years of my career at State Farm, I was a claim manager. I had a variety of teams. The one for the last five years was an operation called field assignment where I had 500 adjustors throughout the United States, four directors about eight first line leaders in that whole operation, and they handled the field claims for State Farm.

State Farm went through a huge change or transition from the good neighbor, going out and shaking hands, meeting with people, and handling claims one on one, to more of a call center environment where they centralized almost all of the employees in two or three locations and used a small field operation to handle those field interactions. In 2018, I was severed from State Farm in another transition, and they dropped about 70 or 80 claim manager positions. I left them in April of 2018 and then joined my new company, Stillwater Insurance Group in Jacksonville, Florida, as Vice-President of Litigation and Compliance.

Can we walk through a typical claims process. Let’s say I have a policy which states I crashed my vehicle. What’s the start of the process?

Let me take it from a homeowner claim first, and then we can get into auto because I know that’s much more common. A typical homeowner claim, for example, would be a pipe burst in your home. You leave for work at eight o’clock in the morning and at nine o’clock, the water supply line to the washing machine burst and floods the house. You come home at five o’clock and there’s water in your house. You call up your insurance agent and submit a claim. That claim is immediately assigned to a claim adjustor; some companies call them claim examiners, most are claim adjustors. The adjustor would make contact with you to find out what happened, and they’ll gauge how bad it is. If it’s a real bad loss, they’ll immediately send out a water mitigation company to dry out the home, suck all the water out, and put fans in the home. Then they’ll work with you. Set up an appointment to come out, inspect the property, measure the rooms to a diagram and assess the amount of damage. Ideally, they would then write an estimate for those damages and pay you for your insurance claim. Then it would be up to you, the insured, to get the repairs done to your home. If there are differences in the estimate, you reconcile those throughout the process. Once the home is fixed, or once you’re satisfied, this claim is closed.

On the auto side, it’s similar but auto can be a little more complex because oftentimes automobile accidents result in not just damage to the automobile, but perhaps to someone else’s auto or property, and then the injuries that go along with that. So that turns into a liability claim. If you rear-end someone in your vehicle and injure them, they go to the doctor and they would make claim against you because you were at fault for the accident. Your policy covers injuries to a third party, and depending on what coverages you have, it covers the damage to your car, and it covers the damages to the other person’s car.

How do you look at the change strategy by State and all the big insurers in terms of the claims process where companies are looking to reduce the cost and moving to more automated claims?

Back when I started in the late 80s, the technology was nowhere near what we have today. I don’t know if you’re familiar with AS400 or green screens, but that was pretty much the extent of the computer. It was all done manually, by paper and phone calls, and going out and meeting with people. Meeting with body shops to see how the process was going to get the car repaired, or visiting with the claimant in the case, the injured party, to see how they’re doing and assess their injuries. Today there are fewer claim adjustors because technology allows you to handle much more work. There are many, many, many more claims with fewer people because of the internet and because of an electronic claim system which does a lot of the manual work that an adjustor had to do 20 or 30 years ago. It’s really the technology and the advent of third-party administrators, business partners, business relationships, artificial intelligence. A lot of that is done behind the scenes. Back in the day, one adjustor could maybe receive 20 new claims per month. Today, due to technology, they can handle maybe 50 claims per month.

In that old process, if I crashed my vehicle and I had a policy with State, you would send a loss adjustor out to see the vehicle? How would you look at the cost and the process of that?

Back in the day, yes, you would. You’d send someone out to look at the vehicle, who would write an estimate for that vehicle and issue you a check or an insurance draft, and then you would go get the vehicle fixed. Today, it is very rare that an insurance adjustor goes out and looks at a damaged automobile. Today, most companies have relationships with a series of body shops. The first call would assess the damage. Oftentimes the customer has an iPhone or the ability to send me a picture, all kinds of technology where I can send you a link. Just like we’re doing right now but I’d have it on my iPhone. I’d say okay, can you go out and show me all four corners of your car? Can you turn it on and show me the odometer? So you have a lot of information, and then we’ll offer and say, here’s three collision repair shops within five miles of your house. You’re welcome to take it to any one of those. We have agreements with those shops that the labor rates are this, in your particular area. You have to use these types of parts. You can’t use original brand name parts from the dealership; you have to use aftermarket parts. Or some policies say it’s okay to use new original parts from the dealership. That body shop repairs your car to your satisfaction, sends the bill to the insurance company and the insurance company pays the auto shop directly. All you’re responsible for is the deductible, which is a couple of hundred dollars. But that’s a mathematical equation. You choose your deductible and it impacts your premium. Kind of like a health care plan, you choose a high deductible plan or a low deductible plan.

So that loss adjustor position has gone from someone who travels and goes and inspects the vehicle, to someone who sits in an office and manages the manual process on a computer?

That’s correct, and that’s why State Farm evolved to where they’re at today. In the 80s, they had 26 regional offices throughout the US and multiple smaller offices throughout the states. In California, they probably had 50 small claim offices with 20 to 150 claims people in them. Today, they have three large buildings, one in Phoenix, Arizona, one in Dallas, Texas and one in Atlanta, Georgia, that house probably 5,000 to 8,000 people in each office. Because of technology, they don’t have to go out and inspect cars, so they can sit in an office in Dallas and handle a claim in New York City, because they just don’t go out and see them. They rely on technology, photos, videos and third-party vendors, to show them the information that they need.

But is that information enough?

Yes.

How does that impact the total loss frequency of vehicles, if you only receive an image versus actually lifting up the bonnet?

Cars that have been manufactured in the last 10 years, such as a 2018 Toyota Corolla, they’re all pretty much the same. You know what a fender costs on a Toyota Corolla; you know what a hood costs on a Toyota Corolla and you know what an axle costs. There’s very little variance on a large number of claims. You’ll get some that are souped up Camaros or a Ferrari or something, and those you do need a little bit more interaction with, but the regular cars, the run of the mill cars, it’s more standard.

We also have technology to say that if you were traveling between 20 and 30 mph and you rear-ended a stopped car, here is the damage that you would expect. We have technology that would show that it’s not going to break the rear taillights. We would expect damage to your grill, to your hood, to your headlights, to your front fenders, and we would have an idea that that repair is going to be between $4,000 and $6,000. If that claim comes in, the photos are similar to what we think, but the body shop says that’s going to cost $13,000 to repair, we say wait a minute. So that’s not going to go through the regular process. Something else will happen to find out why is this thing so far out of the norm.

So the outliers will have to go back for a more manual process to detect what the issue is.

Sort of, but really for those outliers, you would rely on experts. You would probably hire a crash reconstruction expert, maybe an engineer, maybe an auto expert. Maybe you’d get a competitive bid. You’d tow that car to another location and say, okay, if another body shop can do it for $3,000 and this guy wants $13,000, we’re not paying him $13,000. So it just takes more work. If that car comes in and the estimate is between $4,000 and $6,000, there’s very little human intervention. That body shop fixes the car, they upload an estimate, upload the bill and if it meets certain parameters, it’s automatically paid to the body shop and the claim is automatically closed.

Do you think the fact that the insurances companies are now using more of a digital loss adjusting process has led to a higher total loss frequency? Or is it actually different variables around the complexity of the vehicle and repair cost, etc.?

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The Auto Insurance Claims Process

November 30, 2020

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